What is a Dividend?  A Simple Explanation + 4 Tips

Whether you are just starting to invest or have been investing for decades, dividends can be a valuable part of anyone’s investing portfolio. 

What is a Dividend?

A dividend is a distribution of a portion of a company’s earnings paid to the shareholders. Dividends can provide income and growth for long-term investments. 

Dividend Example

Company X has a share price of $100, and you own 100 shares. Company X announces they will pay a $1.50 dividend per share on the next payment date (companies announce dividend amounts several weeks before the payment). On the payment day, you’ll receive $150 worth of dividends. 

Why Companies Pay Dividends

The simple answer is to attract more investors. Many companies that payout dividends are well-established and stable companies. By paying a dividend, they attract investors creating more demand for their stock.

Why Companies Don’t Pay Dividends

Many companies won’t pay dividends for several reasons, the biggest being it hurts their bottom line. That is much less cash the company has and is therefore much less valuable when paying out dividends. 

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